Q1 2024 Eastman Chemical Co Earnings Call

April 26, 2024

Okay.

Operator: Good day everyone, and welcome to the first quarter 2024 Eastman conference call. Today's conference is being recorded. This call is being broadcast live on the Eastman website, www.eastman.com. We'll now turn the call over to Mr. Greg Riddle of Eastman Investor Relations. Please go ahead, sir.

Speaker Change: Good day, everyone and welcome to the first quarter 2020 for Eastman Conference call.

Speaker Change: Today's conference is being recorded.

Speaker Change: This call is being broadcast live on the Eastman website Www Dot Eastman dotcom.

Speaker Change: I will now turn the call over to Mr. Greg Riddle of Eastman Investor Relations. Please go ahead Sir.

Gregory A. Riddle: Okay, thank you, Lydia, and good morning, everyone, and thank you for joining us. On the call with me today are Mark Costa, the board chair and CEO. William McLain, Executive Vice President and CFO, and Jake Leroux, Manager of Investor Relations. Yesterday, after the market closed, we posted our first quarter 2024 financial results news release and SEC-AK filing, our slides, and the related prepared remarks in the investor section of our website, www.eastman.com. Before we begin, I'll cover two items.

Gregory A. Riddle: Okay. Thank you Leah and good morning, everyone and thank you for joining us on.

Gregory A. Riddle: On the call with me today are Mark Costa Board Chair and CEO William.

Gregory A. Riddle: Willie Mcclain, Executive Vice President and CFO, and Jake Laroe manager Investor Relations.

Gregory A. Riddle: Yesterday after market closed we posted our first quarter 2024 financial results news release, and SEC 8-K filing our slides and the related prepared remarks in the Investor section of our website Www Dot Eastman Dot com.

Gregory A. Riddle: Before we begin I'll cover two items.

Gregory A. Riddle: First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. However, actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in our first quarter 2024 financial results news release, during this call, in the preceding slides and prepared remarks, and in our filings with the SEC, including the Form 10-K filed for FY 2023 and the Form 10-Q to be filed for FY 2024.

Gregory A. Riddle: First during this presentation you will hear certain forward looking statements concerning our plans and expectations.

Gregory A. Riddle: Actual events or results could differ materially certain.

Gregory A. Riddle: Certain factors related to future expectations are or will be detailed in our first quarter 2024 financial results news release during this call in the preceding slides and prepared remarks and in our filings with the SEC, including the Form 10-K filed for full year 2023, and the Form 10-Q to be filed.

Gregory A. Riddle: For our first quarter of 2024.

Gregory A. Riddle: Second, earnings referenced in this presentation excludes certain non-core and unusual items. Reconciliations to the Most Directly Comparable Gap Financial Measures and Other Associated Disclosures, including a description of the excluded and adjusted items, are available in the first quarter 2024 financial results news release.

Gregory A. Riddle: Second earnings referenced in this presentation exclude certain noncore and unusual items.

Gregory A. Riddle: Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items are available in the first quarter 2024 financial results news release.

Gregory A. Riddle: As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A.

Gregory A. Riddle: As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A. Lydia, please let's start with our first question. Thank you. So please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak. A kind reminder to please ask one question and one follow-up only. Our first question today...

Speaker Change: Please let's start with our first question.

Speaker Change: Thank you Christoph.

Speaker Change: First off on that by the number one if you'd like to ask a question and ensure your devices on Nietzsche likely when it you will tend to Spike a Condra reminder, to please ask one question and one follow up finally.

Speaker Change: Our first question today comes from Vincent Andrews of Morgan Stanley. Please go ahead. Your line is open.

Operator: So please press star followed by the number one if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak. A kind reminder to please ask one question and one follow-up only. Our first question today comes from Vincent Andrews of Morgan Stanley. Please go ahead, your line is open.

Vincent Stephen Andrews: Mark if I could ask you on the.

Vincent Stephen Andrews: The France.

Vincent Stephen Andrews: Jack could.

Vincent Stephen Andrews: Could you talk a little bit about what you think the scope of the timing delay might be it sounds like there is still committed to going forward, there, but some issues to iron out on the customer.

Vincent Stephen Andrews: On the cost side, so what type of timing delay are we talking about what's your confidence that for both of those issues will be resolved.

Mark J. Costa: So, good morning, Vincent. And thanks for the question. You know, overall, we're incredibly excited about the circular platform, excited about how we're operating the first plan proving out this technology works, and have a lot of engaged customers. And also excited about, you know, the long view with the DOE grant and that's the contract that gives us a lot of confidence. And we believe, long term, the European market is going to be structurally an extremely attractive market to serve.

Speaker Change: So good morning, Vince and thanks for the question.

Overall, we are incredibly excited about the circular platform excited about how we're operating the first plan proving out this technology works and have a lot of engage customers and also excited about it.

Speaker Change: Our long view with the Doa Grant.

Speaker Change: That's a contract that gives us a lot of confidence and we believe long term the European market is going to be structurally an extremely attractive market to serve them, but there are two issues. We're working with that we mentioned in prepared remarks, there is a.

Mark J. Costa: But there are sort of two issues we're working with that we mentioned in prepared remarks. There is climate change and having aggressive policy that and also recognizing that they've got a packaging waste problem, like we do everywhere else, and wanting to have policy that really drives the brand suppliers the market to sort of address that packaging waste, which also includes a lot of carbon emissions. And so they developed a policy that is quite comprehensive, that has some reduce and reuse goals that'll sort of help the problem, but really focused on how do we get all of this material recycled. And it's still being finalized.

Speaker Change: Any sort of regulatory uncertainty.

Speaker Change: And then there is just continuing to do the work, we always do in dealing with inflation and getting the capex number to where it needs to be for good investment.

Speaker Change: On the Capex, we feel good about how we can manage that so it really comes down to customer contracts.

Speaker Change: Your policy and what I'd say is the European Union has been far ahead of the world.

Speaker Change: Recognizing both.

Speaker Change: The carbon issues in this world of climate change and having aggressive policy that and also recognizing that they've got a packaging waste problem like we do everywhere else and wanting to have policy that really drives.

Speaker Change: The brand's suppliers the market to sort of address that packaging waste, which also includes a lot of carbon emissions and so they developed a policy been.

Speaker Change: That is quite comprehensive.

Speaker Change: That has some reduce reuse goes that it'll be sort of helped the problem, but really focused on how do we get all of this material recycled.

Mark J. Costa: But they've got aggressive, you know, targets like 25% content in beverages next year and 25% and everything being at 30%, very high local recycling rates required in Europe, EPR taxes on people who don't do it, strict definitions of what is a recyclable polymer, etc. And so all that, you know, I think is headed to be in policy and makes sense. But there was one recent change that created some uncertainty about how the brands can achieve the recycled content target.

Speaker Change: And it's still being finalized.

Speaker Change: They've got aggressive targets like 25% content.

Averages next year in 'twenty, five and everything is being at 30% very high local recycling rates required in Europe.

Speaker Change: Our taxes on people, who don't do it strict definitions of what is it recyclable polymer et cetera.

Speaker Change: And so all of that is it.

Zinc is headed to be impulse, who makes sense, but there's there was one recent change that created some uncertainty.

Speaker Change: And how the brands can achieve the recycled content targets.

Mark J. Costa: And, you know, there's a problem they face, especially as you go from this year to next year, which is that they're only recycling about 12% of PET back into bottles at the food grade level. They've got to be at 25% next year, so they will struggle to achieve that pretty significantly, as well as there are some WTO issues that come up around imports. And so they changed the policy from requiring everything to be made from local materials to allow imports to be included.

And there's a problem they face, especially as you go from this year to next year, which is their own recycling about 12% of PT back to bottles at the food grade level, we've got to be a 25% next year. So.

It will struggle to achieve that pretty significantly as.

Speaker Change: As well as there's some WTO issues that come up around imports and so they changed their policy from requiring everything to be made from local material to allow imports to be included yes.

Mark J. Costa: Now, they put a bunch of restrictions on what imports would qualify around how they're being made from a sustainability point of view, as well as quality standards. And there's still a lot of complexity in trying to understand that, but it would probably make it very difficult to import from most countries under these equivalency requirements.

Speaker Change: A bunch of restrictions on what imports would qualify around.

How it's being made from a sustainability point of view as well as quality standards.

Speaker Change: And Theres still a lot of complexity in trying to understand that better it would probably make it very difficult to import from most countries and these equivalency requirements and it really creates a huge amount of complexity both for the implementation of policy as well as in achieving the goals of high recycling rates and and really issues around consumer brand equity.

Mark J. Costa: And it really creates a huge amount of complexity, both for the implementation of policy as well as for achieving the goals of high recycling rates and really issues around consumer brand equity. When you're using imports, right, because if you bring imports into the country, you're replacing local demand for recycling, which increases incineration, which also violates, you know, the carbon emission goals of the European Union, the recyclability targets, which is, you know, is your material considered recyclable, requires a very high recycling rate in the European Union, which is also a problem.

Speaker Change: But when youre using imports right because if you bring imports into the country youre, replacing local demand for recycling.

Speaker Change: Which increases incineration, which also violates the carbon emission goals of the European Union.

Speaker Change: Recyclability targets, which.

As your material considered recyclable requires a very high recycling rate in the European Union, which is also a problem and then consumers.

Mark J. Costa: And then consumers, you know, don't want to be solving China's waste problem. They want to see policy driving up recycling locally to address the local problem. So this, you know, creates some uncertainty and really goes back to why we had the circular, you know, contracting model of, you know, we're in this business to be a service provider to the brands to solve their plastic waste problem. We're not getting back into the commodity business.

Speaker Change: Don't want to be solving Chinese waste problem, they want to see policy driving up recycling locally.

Speaker Change: Two.

Speaker Change: Address the local problems. So this creates some uncertainty and really goes back to why we had the circular.

Speaker Change: Contracting model.

Speaker Change: We're in this business to be a service provider to the brands to solve their plastic waste problem.

Speaker Change: Getting back into a commodity business so.

Mark J. Costa: So, you know, we're sticking to our guns as we've told you we would around long-term take or pay contracts that provide stable margins. And so we're still highly engaged with customers. They're still very much working with us.

Speaker Change: We're sticking to our guidance as we've told you we would or a long term take or pay contracts.

Speaker Change: That provides stable margins and so we're still highly engaged with customers are still very much working with us.

Mark J. Costa: But this has slowed down the discussion on how to structure these contracts in this market context. I'd also note that we are targeting a lot of applications that can't even use mechanical recycling material because of performance requirements in the package. And long-term, you know, mechanical recycling won't work anyway because it's going to degrade. Without chemical recycling, sort of keeping it refreshed.

Speaker Change: But this has slowed down the discussion on how to structure. These contracts in this market context. I'd also note that we are targeting a lot of applications that can't even use mechanical recycle material because the performance requirements in the package.

Speaker Change: And long term.

Speaker Change: Mechanical recycling won't work anyway, because its going to degrade.

Speaker Change: Without chemical recycling or keeping it refresh so we're very confident long term market structure. We believe this is a facility that should get built.

Mark J. Costa: So, you know, we're very confident about the long-term market structure. We believe this is a facility that should get built, but we have to stick to our milestones and our requirements around getting the contracts in place like we told you we would do. Okay, and what about on the cost side of the equation? You seem like you're still working on that as well. I mean, inflation, I think, has been an issue for every project out there that I've seen. In our industry, the supply chain crisis has driven up the cost of everything from labor to equipment, et cetera.

Speaker Change: But we got to stick to our milestones in our requirements around getting the contracts in place like we told you we would do.

Speaker Change: Okay.

Speaker Change: On the cost side of the equation.

We're still working on that as well.

Speaker Change: I mean inflation I think has been an issue for every project out there that I've seen in our industry. The supply chain crisis has driven up the cost of everything from labor equipment et cetera. So all projects have had some amount of escalation to it.

Mark J. Costa: So, you know, all projects have had some amount of escalation added to them. You know, we have a good plan to get the capital to where it needs to be on the Longview plant, and we have developed a plan on how to get the capital down on the French plant. But it's going to take a little more work on some of the elements of doing that. And so while we're working on getting these contracts, we're taking that extra time to, you know, continue working on reducing the CapEx, but we feel that we have a pathway to do that.

Speaker Change: We have a good plan to get the capital to where it needs to be on the Longview plant and we have developed a plan on how to get the capital down on on the French plant, but it's going to take a little more work on some of the elements of doing that and so what we're working on getting these contracts for taking that extra time to.

Continue working on reducing the capex, but we feel that we have a pathway to manage that issue.

Speaker Change: Okay. Thanks, very much I appreciate it.

Speaker Change: Yep.

Operator: Our next question comes from Aleksey Yefremov of Key Corp. Please go ahead.

Speaker Change: Our next question comes from Alexia <unk> from Roth Capital. Please go ahead.

Aleksey V. Yefremov: Thank you and good morning. Mark, just to follow up on this, do you have any idea to what degree this delay in France could maybe help you load Kingsport's facility for specialty applications?

Alexia: Thank you and good morning, Mark just to follow up on this do you have any idea to what degree there is delay in France can maybe help you load kingsport facility or for specialty applications.

Mark J. Costa: So the, you know, we have we have a lot of different flexibility. That's the beauty of how we manage all of our polymer lines in how we optimize value. You know, today we do it from Triton to copolyesters to, you know, medical PET. And, and, you know, every line we ever built, the ones in France, as well as the Texas project.

Mark J. Costa: So we have a lot of different flexibility that's the beauty of how we manage all of our polymer lines.

Mark J. Costa: And how we optimize value today, we do it from Triton to co polyesters two medical P T.

Mark J. Costa: And.

Mark J. Costa: And every line, we ever build the ones in France, as well as the Texas project.

Mark J. Costa: We'll have the flexibility to make both PT and specialty products. So, you know, we're always going to be optimizing value and mix. That's the heart of our business model, and we're very good at doing it. So, in that sense, it doesn't really matter which project gets built first.

Mark J. Costa: We will have the flexibility to make both PT in specialty products. So we're always going to be optimizing value and mix. That's the heart of our business model and we're very good at doing it.

Mark J. Costa: So.

Mark J. Costa: In that sense, it doesn't really matter, which project gets built first.

Mark J. Costa: You know, we'll sort of optimize value between specialty and PT as we sort of build out our sort of global position. The first plant, you know, is already very much focused on specialty applications. So we'll be driving into, you know, Triton, into cosmetic packaging, into shrink packaging, into a variety of different applications, and levering that up. And there are things we're working on to expand and extend the capacity of the first plant as we get it up and running while we sort of work on building the second and third plants.

Mark J. Costa: We will optimize value between specialty and PT as we sort of build out our serve our global position.

Mark J. Costa: First plant.

Mark J. Costa: <unk> is already very much focused on specialty applications. So it will be driving into triton into cosmetic packaging into shrink packaging into a variety of different applications.

Mark J. Costa: And levering that up and there's things we're working on to expand extend the capacity on the first plant as we get it up and running.

Mark J. Costa: While we sort of work on building the second and third plants.

Mark J. Costa: And so whichever plant gets built first, you know, between Texas and France, will optimize value between PET, which we have the contract with Pepsi on, and specialty to maximize value as we build out the portfolio.

Mark J. Costa: So whichever plant gets built first between Texas, and France will optimize value between PT.

Mark J. Costa: <unk>, which we have the contract with Pepsi on in specialty to maximize value as we build out the portfolio.

Mark J. Costa: Thanks, Mark. And on the annual guidance, you know, nice beat in Kewan; you have a lot of details in the press release. But in general, strong start to the year, why not raise the whole year? Did anything change in the rest of the year to keep the guidance the same? Or is it more conservative than that? It's more of the latter.

Speaker Change: Thanks Mark.

Speaker Change: On the annual guidance, a nice beat in Q1.

Speaker Change: There's a lot of details in the press release, but in general strong started the year why not raise full year did anything change in the in the.

Speaker Change: Rest of the year to keep the guidance the same or is it more conservatism than anything else.

Mark J. Costa: It's more the latter. We're very proud of the beat we had in Q1 and the fact that it was volume-driven, which is the key element of the challenges we had last year, and, frankly, the whole industry had last year. To see that volume come back better than expected gives us confidence, especially because it came back in the specialties, which is where our highest value is generated for the portfolio. So we feel good about that.

Speaker Change: It's more of the latter.

When you were very proud of the beat we had in Q1 and the fact that it was volume driven.

Speaker Change: Which is the key element of the challenges we had last year frankly, the whole industry had last year.

Speaker Change: To see that volume come back better than expected gives us confidence, especially because it came back in the specialties.

Speaker Change: Which is where our highest values generated for the portfolio. So.

Speaker Change: So we feel good about that and as you look at our guidance clearly we have confidence in am and AFP and we have confidence in fibers doing better Ci is always a little uncertain, but the main reason we're didn't upgrade the range is it's the first quarter, there's a lot of macroeconomic uncertainty out there a lot of geopolitical.

Mark J. Costa: And as you look at our guidance, clearly, we have confidence in AM and AFP, and we have confidence in fibers doing better. But CI is always a little uncertain. But the main reason we didn't upgrade the range is that it's the first quarter. There's a lot of macroeconomic uncertainty out there, a lot of geopolitical uncertainty that we're all living with every day. And we wanted to really stick to our approach in January, which is this is an economy-neutral forecast.

Speaker Change: Uncertainty that we're all living with every day.

Speaker Change: And we wanted to really stick to our approach in January which is this is a.

Speaker Change: Neutral forecast right, we're not projecting fundamentals are getting better in the back half of the year to deliver this range. We're also not projecting fundamental market underlying demand is going to get worse in the back half of the year, we're saying it's neutral you believe fundamentals will get better.

Mark J. Costa: We're not projecting fundamentals getting better in the back half of the year to deliver this range. We're also not projecting underlying demand is going to get worse in the back half of the year. We're saying it's neutral because we believe the fundamentals will get better. In the back half, then that would be upside in our forecast. If you have concerns about geopolitics, then there's some sort of risk to the midpoint of our forecast. But at this stage, I think it's just prudent to be a little cautious until we see how things develop.

Speaker Change: In the back half and that would be upside in our forecast. If you have concerns about geopolitics and there is some sort of risk to the midpoint of our forecast.

Speaker Change: But at this stage I think it's just prudent to be a little cautious until we see how things develop.

Thanks Mark.

Operator: The next question comes from Duffy Fisher of Goldman Sachs.

Speaker Change: The next question comes from Duffy Fisher of Goldman Sachs. Your line is open.

Patrick Duffy Fischer: Yeah, good morning. Can you just give us some more details on the methanolysis plant that's been running, let's say, for a month now? You know, I'm sure some stuff you can't, but things like what's the premium looking like? What's the breadth of feedstock that you've been able to run through? You know, maybe just kind of an update on how the plant's running and how you'd expect it to ramp up from here over the next couple of quarters.

Patrick Duffy Fischer: Yes, good morning.

Patrick Duffy Fischer: Can you just give us some more details around the methanol at this plant has been running at let's say for a month now.

Patrick Duffy Fischer: Sure some stuff you can't but.

Patrick Duffy Fischer: Like what's the premium looking like what's the breadth of feedstock that you've been able to run through maybe just kind of an update on how the plants running and how you'd expect it to ramp from here over the next couple of quarters.

Mark J. Costa: It's great to get that question because we're really excited about having this first plant up and running. You know, this will be the world's largest chemical recycling facility, and we're really excited to show the world what's possible not just in generating earnings and growth for our owners but in solving a pretty significant environmental problem. And we're really excited, you know, that we're on spec with the material, and we're serving our

Speaker Change: Fair enough.

Speaker Change: Great to get that question because we are really excited about having this first plant up and running this will be the world's largest chemical recycling facility and we're really excited to show the world what is possible not just in generating earnings and growth for our owners and solving a pretty significant environmental problem.

Speaker Change: And we're really excited that we're on spec with material.

Speaker Change: Serving our customers.

Mark J. Costa: It's pretty amazing when you look at, you know, basically garbage going into the front of the plant and sort of on-spec material coming out the back end. And it is a very complicated technology and plant. So it is non-trivial to start up, you know, compared to if you're building a commodity asset.

Speaker Change: Pretty amazing when you look at basically garbage going into the front of the plant and sort of on spec material coming out the back end.

Speaker Change: It is a very complicated technology and plant. So it is non trivial to start up compared to if youre building a commodity asset.

Mark J. Costa: The good news is that we have fully confirmed that the process chemistry works, which was always the biggest question that I think people had, and we can confirm that it's working. We've validated all the unit operations are functioning as designed and can run continuously. So we feel really good about the design and the structural aspects of the plant.

Speaker Change: The good news is.

Speaker Change: We have fully confirmed that the process chemistry works, which was always.

Speaker Change: The biggest question that I think people had and we can confirm that's working with.

Speaker Change: We validated all unit officer functioning as designed and can run continuously.

Speaker Change: So we feel really good about the sort of design and the structural aspects of the plant.

Mark J. Costa: The challenge has been just getting the plant to run reliably. And we're certainly, you know, about four weeks behind schedule, as we mentioned in the prepared remarks on that front. And really, you know, we're still focused on reliability. So we haven't moved into a broad feedstock slate or ramped up the capacity a lot until we've actually addressed some of these mechanical issues. So all the issues we're facing have nothing to do with the process chemistry. They're literally mechanical problems. Some of it was, in the beginning, construction errors, leaks, and improperly installed equipment.

Speaker Change: The challenge has been just on getting the plant to run reliably.

Speaker Change: And we're certainly in about four weeks behind schedule as we mentioned in the prepared remarks on that front.

And really we're still focused on reliability. So we haven't moved into abroad feed slate feedstock slate of ramped up the capacity a lot until.

Speaker Change: Until we've actually addressed some of these mechanical issues. So all the issues. We're facing has nothing to do with the process Chemistries literally.

Speaker Change: Canticle issues.

Speaker Change: Some of it was in the beginning construction area, so leaks and properly installed equipment. We believe we've addressed most of those as she is actually all of those issues at this stage than Theres been.

Mark J. Costa: We believe we've addressed most of those issues, actually all of those issues at this stage. Then there's been sort of more than normal early failure of some pieces of equipment like instrumentation valves and some other equipment. This is not unique to us.

Speaker Change: Sort of a more than normal early failure of some pieces of equipment and instrumentation valves and some other equipment.

Speaker Change: It is not unique to us we see all of our peers, having the same challenge globally, where just equipment wasn't has made as well as we would hope in the supply chain crisis.

Mark J. Costa: We see all of our peers having the same challenge, you know, globally, where just equipment wasn't made as well as we would hope in this supply chain crisis. And we're all sort of dealing with these kind of annoying little issues. They're simple to solve, but they just slow you down.

Speaker Change: We're all sort of dealing with these kind of sort of annoying little issues. There is simple to solve but they just slow you down.

Mark J. Costa: And we've also had some reliability issues on rotating equipment, especially pumps. And that is a little more complicated; it's a mixture of quality of assembly, some design issues, and some operating learning. We've done a total root cause analysis on that.

Speaker Change: As you have to sort of pause to address them.

Speaker Change: And we've also had some reliability issues on rotating equipment and specialty pumps.

Speaker Change: And that is one more complicated it's a mixture of quality.

Speaker Change: Quality of Assembly, some design issues and some operating learnings.

Speaker Change: We've done a total root cause analysis on that feel we have a very clear understanding what's causing it and we're very close to completing all the actions we need to address those issues. So I'd say from a mechanical point of view, we feel very good.

Mark J. Costa: We have a very clear understanding of what's causing it, and we're very close to completing all the actions we need to address those issues. So I'd say from a mechanical point of view, we feel very good about where we are. The plan is running. Our priority right now is serving customers, which we are doing, and we're just in the phase of ramping up production and expanding our feedstock slate to try out those issues.

Speaker Change: About where we're at the plants running a priority right now is serving customers, which we're doing.

Speaker Change: We're just.

Speaker Change: In the phase of ramping up production and sort of.

Speaker Change: Spanning our feedstock slate to search and.

Mark J. Costa: But 70% of the output of the plant is a monomer called DMT, and that's always clean, no matter what. So the process chemistry around yield and impurities really is just about EG, which is a smaller part of the plant.

Speaker Change: Try out those issues.

Speaker Change: 70% of the output of the plant as a modern recall DMT.

Speaker Change: That's always clean no matter, what the process chemistry around sort of view an impurity has really is just about <unk>, which is a smaller part of the plant. So.

Mark J. Costa: You know, as we ramp up and test that other material. We feel very good about supplying customers this year because their demand that we're projecting is not close to the capacity of this plant. And so we've got plenty of ways to keep them served and supported.

Speaker Change: You know as we ramp up tests that other material we.

Speaker Change: We feel very good about supplying customers this year because their demand.

Speaker Change: Projecting is not close to capacity of this plant.

Speaker Change: And and so we've got plenty of plenty of ways to keep them served and supported so we still feel good about the $75 million of EBITDA.

Mark J. Costa: So we still feel good about the $75 million of EBITDA that we've got out there as having a pathway, although it's obviously a little more challenging with how we've had a slower start. We feel good that we can achieve it for the year. But I'd say as far as progression goes, our plan was always to do what we're doing right now at a steady state to make sure that mechanically everything's fine. Then you ramp up production as well as start broadening the feedstock, which we'll be doing through this next quarter. So we'll have a lot more to tell you about that when we get to the second quarter.

Speaker Change: That we've got out there is having a pathway. It's obviously a little more challenged with how we've had a slower start but we feel good that we can achieve it for for the year.

Speaker Change: I'd say as far as progression goes our plan was always to do what we're doing right now is running at a steady state to make sure mechanically Everything's Fine then you ramp up as well as start Brian the feedstock, which we'll be doing through this next quarter.

Speaker Change: So we'll have a lot more to tell you about that when we get to the second quarter call.

Mark J. Costa: And then in the market, it seems like there's been an inordinate number of PDH unit issues over the last couple quarters. Maybe just bigger picture, how has that impacted your business? You obviously take a lot of propylene derivatives, but are you using that as a positive or a negative across your whole portfolio? Well, first and foremost, this is a propylene derivative.

Speaker Change: Great. Thanks.

Speaker Change: In the market it seems like Theres been an inordinate number of PVH unit issues over the last couple of quarters, maybe just bigger picture how has that impacted your business. You, obviously take a lot of propylene make derivatives, but he is using that as a positive or a negative across your whole portfolio.

Mark J. Costa: Well, first and foremost, the sort of propylene derivatives are predominantly going to show up in CI, as far as value goes, but there are, you know, propylene derivatives that go into AFP as well as AM, so, you know, there's parts of the propylene stream that goes across the whole integrated complex. When outages occur and the price of PGP goes up, you know, that's good for us, obviously. But it's always a question of how PGP will move relative to the price of propane.

Speaker Change: First and foremost as for propylene derivatives are predominantly going to show up in Ci.

Speaker Change: As far as the value goes but there are <unk>.

Speaker Change: Propylene derivatives that go into.

Speaker Change: AFP as well as a M. So there is parts of the propylene stream that goes across the whole integrated complex.

Speaker Change: When the outages occur in the price of PGP goes up that's good for US obviously, but it's always a question of how does PGP move relative to the price of propane.

Mark J. Costa: You know, that gets us to that spread, and through the first quarter, we certainly saw PGP move up, but we also saw propane prices come in much higher than expected, so those sort of netted out to some degree. And as we go into this quarter, those spreads look like they're going to contract a bit from the first quarter, you know, with the way PGP prices have come off as outages have been resolved. So it's, you know, it's, you know, the nature of, you know, these businesses where there's a certain amount of ups and downs and spreads. And, you know, that's just factored into our guidance.

Speaker Change: That gets us to that spread.

And through the first quarter, we certainly saw PGP move up but we also saw propane prices come in much higher than expected. So those sort of netted out to some degree.

Speaker Change: As we go into this quarter those spreads look like theyre going to contract a bit from the first quarter with J P. G. P prices have come off as outages have been resolved.

Speaker Change: So it's.

Speaker Change: It's the nature of these olefin businesses, where theres, a certain amount of up and down and spreads.

Speaker Change: And that's.

Speaker Change: That's just factored into our guidance.

Operator: Our next question comes from Frank Mitsch of Fermian Research. Please go ahead.

Speaker Change: Great. Thank you guys.

Speaker Change: Our next question comes from Frank Mitsch Fermium Research. Please go ahead.

Frank Joseph Mitsch: Thank you. Good morning.

Mark J. Costa: Mark, I do appreciate the color on what's going on in France, and I'm trying to understand how the consumer brand companies are out there. They're making promises about what percent they're going to have recycled by what year, and reasonable minds believe that they're not going to hit those targets. And so here is an opportunity to get on board with recycled content with you. And yet, it seems like they're waiting for government subsidies or mandates or something before they sign contracts.

Speaker Change: Okay.

Frank Joseph Mitsch: Thank you good morning.

Frank Joseph Mitsch: Mark I do appreciate the color on what's going on in France, and I'm trying to reconcile how the consumer brand companies are out there theyre, making promises about what percent, they're going to have recycled by what year and reasonable minds believe that theyre not going to hit those targets and so here is an opportunity to get on <unk>.

Speaker Change: Ward with a.

Speaker Change: Recycled content with you and yet it seems like they are waiting for government subsidies or mandates or something before they sign contracts.

Mark J. Costa: I mean, it almost seems hypocritical on their part in terms of making the statement. So it begs the question, how committed are they in terms of recycled content? And, you know, given where we are right now, how do you feel about the potential for, if things don't work out the way that you anticipate, walking away from the France project?

It almost seems hypocritical on their part in terms of making the statements. So it begs the question how committed are they in terms of recycled content and.

Speaker Change: Given where we are right now.

How do you feel about the potential of if things don't work out the way that you anticipate walking away from the France project.

Mark J. Costa: Hey, Frank, every customer we have that we're meeting with, I think is highly committed to addressing the recycling content question and making sure that they're making their packaging with higher rates of recycled content. And frankly, many of the top brands have 100% goals on a lot of their packaging. They're, you know, they're way above any sort of regulatory policy that's out there.

Speaker Change: Hey, Frank So one every customer we have that we're meeting with I think is highly committed to addressing.

Frank Joseph Mitsch: Well the recycled content question.

And making sure that they are making their packaging with higher rates of recycled content and frankly many of the top brands have 100% goes on a lot of their packaging there are way above any sort of regulatory policy. That's out there. So I don't think theres any lack of commitment that they know this is an important I do think there is a reality, which is there is a <unk>.

Mark J. Costa: So I don't think there's any lack of commitment on their part that they know this is important. But I do think there's a reality, which is that there is a significant lack of recycling infrastructure in this world and, you know, in mechanical recycling today. And I think most brands understand that a lot of what they do in packaging, mechanical recycling, won't even work properly. So the need for chemical recycling is absolutely necessary in the long term. There's this, I haven't run into anyone who thinks that both mechanical and chemical aren't necessary.

Frank Joseph Mitsch: Significant lack of recycling infrastructure in this world.

Frank Joseph Mitsch: Mechanical recycling today, and I think most of the brands understand that a lot of what they do and packaging mechanical recycling won't even work properly so the need for chemical recycling.

Frank Joseph Mitsch: Is absolutely necessary and the long term there is I haven't run to anyone who thinks that both mechanical and chemical are necessary.

Mark J. Costa: So demand conditions are very clear. The question is how do they meet those conditions, right? And, you know, at the moment, there's been a ramp-up. If you go look at the data on, you know, imports of ARPET into the U.S. and Europe, that is affordable.

Frank Joseph Mitsch: Demand conditions very clear the question is how does it meet those conditions right and.

Frank Joseph Mitsch: At the moment in there there's been a ramp up if you go look at the data imports of <unk> into the U S and Europe.

Frank Joseph Mitsch: That is as affordable.

Mark J. Costa: And that's a way for them to manage costs and hit their targets in the short term. But the dilemma for that is it doesn't really solve the actual problem, which is that US and European consumers want waste out of their environment, right? They don't want to be a solution to China's trash problem, right? So, they've got to work their way through that on the economics versus what the real goal is, which is addressing local recycling.

Frank Joseph Mitsch: And that's a way for them to manage cost and hit their targets in the short term.

Frank Joseph Mitsch: The dilemma for that is it doesn't really solve the actual problem, which is U S consumers European consumers want waste out of their environment right. They don't want to be a solution to China's trash bottle right.

Frank Joseph Mitsch: So they've got to work their way through that on the economics versus what the real goal is which is addressing local recycling.

Frank Joseph Mitsch: And.

Frank Joseph Mitsch: And so is there sort of an.

Frank Joseph Mitsch: In this situation of where our prices are relatively low right now.

Mark J. Costa: And so, as they're sort of in this situation of, you know, where our pet prices are relatively low right now and imports are available versus the long term, which regulation is certainly going to drive a requirement for higher recycling rates within the U.S., within Europe, how do they sort of make those choices and decisions? So, it's just taking us longer to work through these contracts. I'm confident in the end, you know, these brands will focus on what is the correct thing to do for the U.S. and Europe's waste issues, but it's just taking us longer to negotiate the contracts than we expected.

Frank Joseph Mitsch: Imports are available versus the long term, which regulation is certainly going to drive a requirement for higher recycling rates within the U S. Within Europe, how do they sort of make those choices and decisions.

Frank Joseph Mitsch: So it's just taking us longer to work through these contracts I'm confident in the end. These brands will focus on what is the correct thing to do for.

Frank Joseph Mitsch: The U S and Europe sort of waste issues, but it's just taking us longer to negotiate the contracts and we expect it.

Frank Joseph Mitsch: I appreciate that I mean, it seems like it seems like a slam dunk you guys seem to be the best game in town for them to get to that chemical recycling, which is superior mechanical recycling and yet.

Mark J. Costa: I appreciate that. It seems like it's a slam dunk. You guys seem to be the best game in town for them to get to that chemical recycling, which is superior to mechanical recycling. And yet, you know, it's taking a little bit slower.

Speaker Change: It's taken a little bit slower just one other just one other question.

Speaker Change: And in the prepared remarks, you talked about a Patagonia partnership.

Youre recycling, it's unusable apparel unusable apparel, what is that is that like off spec products and is this something that.

Frank Joseph Mitsch: Just one other question, in the prepared remarks, you talked about a Patagonia partnership where you're recycling unusable clothing. What is that? Is that like off-spec products? And is this something that you can provide a little more color on that? And is this something that you're looking to expand with other consumer brands?

Speaker Change: Can you provide a little more color on that and is this something that youre looking to expand with with other other consumer brands.

Speaker Change: It's a great story in Patagonia is by far the leader like like Europe around recycling.

Speaker Change: Patagonia.

Speaker Change: Has it take back program. So it's an active program with their customers to say when youre throwing.

Speaker Change: Throwing your garment away your.

Mark J. Costa: It's a great story, and Patagonia is by far the leader, like Europe around recycling, has a take-back program. So it's an active program with their customers to say when you're going to throw your garment away, your, you know, fleece vest or whatever it is, you have Drop it off at a store, and we'll take it back so it doesn't end up in landfills. So it's actually a genuine circular program to prevent, you know, textiles being thrown away.

Speaker Change: Fleece vest or whatever it is you have.

Speaker Change: Drop it off at a store and we will take it back so it doesn't end up in landfill. So it's actually it's a genuine circular program to prevent textiles being thrown away. The second largest source of plastic waste in landfills or incineration or textiles after packaging.

Speaker Change: It's a huge problem.

Speaker Change: So they are truly forward leaning when it comes to anything environmental way ahead of anyone else and they really do their science on it so theyre taking back all these garments and then were shutting them in recycling.

Mark J. Costa: The second largest source of plastic waste in landfills or incineration is textiles after a package. It's a huge problem, and so they are truly forward-leaning when it comes to anything environmental, way ahead of anyone else, and they really do their science on it.

Speaker Change: Putting it back into fibers.

Speaker Change: This case NIE of fibers.

Speaker Change: For some of their products. So it's a genuine circle.

Speaker Change: The textile industry. So it's a program, we certainly want to expand and do with other companies. If you think of all the fast fashion brands out there where their whole business model has been centered on buy things and then throw away and buy new things.

Mark J. Costa: So they're taking back all these garments. And then we're shredding them and recycling them and putting them back into fibers, in this case Naya fibers, for some of their products. So it's a genuine circle for the textile industry. So it's a program we certainly want to expand and involve other companies. If you think of all the fashion brands out there whose whole business model is centered on buying things, you know, and then throwing them away and buying new things, you know, with the regulations that are coming in Europe around that waste, which is the next round after packaging regulation. As well as the consumer pressure on waste, you know, that exists here as well. This is another great circular story.

Speaker Change: With the regulations that are coming in Europe around that waste, which is the next round after packaging regulation.

Speaker Change: As well as the consumer pressure on waste.

It exists here as well this is another great circular story when we can.

Speaker Change: Take ultimately this back into the our CRT to make <unk> or we can take the textile back into polyester plan to make.

Speaker Change: Polyester fibers.

Speaker Change: <unk> chips for polyester fiber so.

Speaker Change: It gives us a lot of opportunities to work on there. These are complicated program. So I wouldn't say that the volume is going to be particularly high anytime soon.

Speaker Change: But it is a model that has to be developed to build a future where we have wasted the environment and with the new technology. When you think about the Texas project.

Mark J. Costa: And we can, you know, take this ultimately back into our CRT to make NIA fibers, or we can take the textile back into the polyester plant to make, you know, polyester fiber and Chips for polyester fiber. So, it gives us a lot of opportunity to work on there. These are complicated programs.

Speaker Change: 90% lower carbon footprint, almost close to a zero carbon footprint plant that's extremely compelling not just on the waste side, but on the de carbonization side. So we're we're very excited about what we can do for the marketplace.

Mark J. Costa: I wouldn't say that the volume is going to be particularly high anytime soon, but it is a model that has to be developed to build a future where we have, you know, waste out of the environment. And with the new technology, when you think about the Texas project, you know, a 90% lower carbon footprint, almost close to a zero carbon footprint plant. That's extremely compelling, you know, not just on the waste side but on the decarbonization side. So, we're very excited about what we can do for the marketplace.

Speaker Change: Very helpful. Thanks, so much mark.

Speaker Change: Yep.

Speaker Change: Okay.

Speaker Change: Our next question comes from David Begleiter of Deutsche Bank. Please go ahead.

David L. Begleiter: Thank you and good morning.

David L. Begleiter: Mark on the Longview project reached in Q3, what's the timeline from there for for construction and startup.

David L. Begleiter: Yes that would have the plant sort of coming online in the second half of 2027.

David L. Begleiter: And would the cost how would the cost compared to Kingsport.

David L. Begleiter: The capital costs are different.

David L. Begleiter: The methanol so you've seen it it will be much cheaper than the kingsport plant to build because theres a lot of sort of lessons we learned as we've shared in past calls around.

Operator: Very helpful. Thanks so much, Mark. Yeah. Our next question comes from David Begleiter of Deutsche Bank.

David L. Begleiter: How to sort of be more effective in building a plant right. So we certainly don't intend to have the construction issues that we ran into and there's a lot of learning both on the construction as well as operating the plant now.

Operator: Our next question comes from David Begleiter of Deutsche Bank. Please go ahead. Thank you. Good morning.

David L. Begleiter: That gives us much better insight on how to improve some aspects of the plant all of which will make the plant cheaper to build.

David L. Begleiter: Yeah, that would have a plant sort of coming online in the second half of 2027. And would the cost, how would the cost compare to...

David L. Begleiter: So.

David L. Begleiter: We feel good about that that part of the plan coming in lower than than Kingsport.

Mark J. Costa: The capital costs are different. The, you know, the methanol use unit will be much cheaper than the Kingsport plant to build because, There's a lot of sort of lessons we learned as we've shared in past calls around how to sort of be more effective in building a plant, right? So we certainly don't intend to have the construction issues that we ran into, and there's a lot of learning both in the construction as well as operating the plant now that gives us much better insight into how to improve some aspects of the plant, all of which will make the plant, you know, cheaper to build.

David L. Begleiter: By a meaningful amount, but the differences kingsport had a huge amount of polyester lines and all the infrastructure for handling materials into the plant it out of the plants that we can leverage as well as energy infrastructure that was already in place here that was.

David L. Begleiter: Leverage, but we didn't have to add energy and steam infrastructure. So when you go to the Longview plant or the France project.

David L. Begleiter: Metanalysis, one part is cheaper, but youre, adding polymer lines throughout and you have a lot of infrastructure you need to build around this facility that doesn't exist in either of those locations.

Mark J. Costa: So, we feel good about that part of the plant coming in lower than Kingsport by a meaningful amount, but the difference is Kingsport had a huge amount of polyester lines and all the infrastructure for handling materials into the plant and out of the plant that we could leverage, as well as energy infrastructure that was already in place here that was leverageable. We didn't have to add energy and steam infrastructure.

David L. Begleiter: Total capital cost turns out to be higher Unfortunately, we've got great incentives.

David L. Begleiter: The Doe grant that $375 million is extremely helpful. In supporting the economics of the project offsetting inflation and paying for this AD of scope that we did to the plant.

Mark J. Costa: So when you go to the Longview plant or the France project, the methanolysis part is cheaper, but you're adding polymer lines, and you have a lot of infrastructure you need to build around this facility that doesn't exist in either of those locations. So the total capital cost turns out to be higher. Fortunately, we've got great incentives, you know, with the DOE grant; that $375 million is, you know, extremely helpful in supporting the economics of the project, offsetting inflation and paying for this add-on scope that we did to the plant with this thermal battery and solar facility that allows us to get to that 90% reduced carbon footprint I mentioned.

David L. Begleiter: With this thermal battery and solar facility that allows us to get to that 90% reduce carbon footprint I mentioned.

David L. Begleiter: And then the French plant same thing, it's cornfields, so there's infrastructure, you're having to add that sort of more and and there you've got a biomass steam plants, you're building as opposed to leveraging existing energy infrastructure.

David L. Begleiter: Tennessee site.

David L. Begleiter: So each project is quite different in scope and what it's building.

Mark J. Costa: And then the French plant, same thing, it's cornfields, so there's infrastructure you're having to add that's, you know, sort of more and, And there you've got a biomass steam plant you're building as opposed to leveraging existing energy infrastructure, you know, on the Tennessee side.

David L. Begleiter: And both projects have a lot of incentives to support it we haven't disclosed the full amount from France, but it's an attractive amount of support as well I mean I have to say the French government through everything has been incredibly supportive on incentives on permitting.

Mark J. Costa: So, you know, it is – each project is quite different in scope in what it's building, and both projects have a lot of incentives to support them. We haven't disclosed the full amount from France, but it's an attractive amount of support as well. I mean, I have to say the French government has been incredibly supportive of incentives, on permitting, you know, helping make sure the policy makes sense in Europe as much as they can.

David L. Begleiter: Helping make sure the policy and it makes sense in Europe as much as they can so we really appreciate all the support and everything that they've done to enable that project.

Speaker Change: And Mark if I could ask just on fibers, and obviously strong topline driven by <unk> I read your prepared comments.

Mark J. Costa: How should the top line trend in fiber and as you move through the rest of the year.

I think that the fibers on trend from a volume point of view.

Mark J. Costa: It is a bit less in the back half of the year than the first half so volume and earnings will be a little bit less in the back half of the year.

Mark J. Costa: So, we really appreciate all their support and everything that they've done to enable that project. And, Mark, if I could ask you just on fibers and, obviously, a strong top line driven by NAYA. I have read your prepared comments.

Speaker Change: And it's just timing of customer orders, it's sort of normal we've always talked about this business.

Speaker Change: The pattern of the customers is a little bit.

Speaker Change: Unpredictable across the year.

Speaker Change: So it's just that but the textile side will continue to grow.

Mark J. Costa: How should the top line trend in fiber as we move through the rest of the year? I think that the fiber trend, from a volume point of view, is a bit less in the back half of the year than in the first half. So, you know, volume and earnings will be a little bit less in the back half of the year. It's just the timing of customer orders. It's sort of, you know, normal. We've always talked about this business.

Speaker Change: And provide earnings growth.

Speaker Change: Volume.

Speaker Change: Obviously as I, just said will come off a bit in the back half will be a little bit lower in the first half.

Speaker Change: Okay.

Speaker Change: Thank you very much.

Speaker Change: Our next question comes from Jeff Zekauskas of Jpmorgan.

Jeffrey John Zekauskas: Your line is open.

Yes.

Jeffrey John Zekauskas: Thanks very much.

Jeffrey John Zekauskas: What's the depreciable life.

Kingsport and ethanol.

Speaker Change: Hey, Jeff Good morning.

Mark J. Costa: The order pattern of the customers is a little bit... Unpredictable across the year. So it's just that, but the tech sales side will continue to grow and provide earnings growth. The total volume, you know, will obviously come off a bit and the back half will be a little bit lower in the first half. Thank you very much.

First of all like you can just think about around 20 years.

Jeffrey John Zekauskas: T sport facility and honestly that would be true for <unk>.

Jeffrey John Zekauskas: Each of the large circular recycling.

Plants that we're building.

Jeffrey John Zekauskas: Okay and in terms of the volume growth in the quarter additives and functional products shrank a percent.

Jeffrey John Zekauskas: Which of the subcategories.

Operator: Our next question comes from Jeff Zekauskas of J.P. Morgan. Your line is open. Thanks very much. What's the depreciable life of the Kingsport methanol? Good morning. Its appreciable life, you can just think.

Jeffrey John Zekauskas: Klein and volume in the quarter.

Jeffrey John Zekauskas: And in advanced materials, where you were up 4%.

Jeffrey John Zekauskas: How would you compare what happened in specialty plastics to inner layers to performance films did they all grow did some of them shrink.

Jeffrey John Zekauskas: Hey Jeff, good morning. It's an appreciable life you can just think about around 20 years for the Kingsport facility, and honestly, that would be true for each of the large circular recycling plants that we're building.

Speaker Change: Sure Jeff.

Speaker Change: And nice compound question you got two segments in one.

Speaker Change: Sure.

Speaker Change: So on ASP.

Jeffrey John Zekauskas: We are sort of that net down, 1%, which I call mostly flat.

Mark J. Costa: Here, Jeff. And a nice compound question; we got two segments in one. So on AFP, we were sort of net down 1%, which I call mostly flat, and there are meaningful moving parts in that, Jeff. Coatings and care chemicals actually had very good growth sequentially into the first quarter. And then we had much lower, especially fluid bills and heat transfer fluid, and those two sort of offset each other. Ag had its own unique dynamic, right?

Jeffrey John Zekauskas: There are meaningful moving parts on that Jeff.

Jeffrey John Zekauskas: Coatings and care chemicals actually had very good growth sequentially.

Jeffrey John Zekauskas: Into into the first quarter.

Jeffrey John Zekauskas: And then we had much lower.

Jeffrey John Zekauskas: Especially fluid fills in heat transfer fluids.

Jeffrey John Zekauskas: And in those two sort of offset each other AG has its own unique dynamic right. So year over year. They are still destocking relative to last year. So demand is down.

Mark J. Costa: So year over year, you know, there's still this overstocking relative to last year, so demand's down. But we did see, you know, more than expected sequential improvement in ag demand from Q4 to Q1, which was, you know, just less. It turns out they didn't need to destock as much as they thought. They had confidence about the ag season this year.

Jeffrey John Zekauskas: But we did see more than expected sequential improvement in.

Jeffrey John Zekauskas: In AG demand from from Q4 to Q1, which was.

Jeffrey John Zekauskas: It turns out they didn't need to destock as much as they thought that confidence about the AG season. This year. So in North America, I would say destocking is over.

Mark J. Costa: So, in North America, you know, I would say destocking is over. There is still some residual destocking, you know, competitive dynamics for our customers, not us, but for our customers going on in Latin America. So, there's still some of that destocking to come to an end, you know, in the future. But the vast majority of our business is focused on North America.

Jeffrey John Zekauskas: There is still some residual destocking.

Jeffrey John Zekauskas: Competitive dynamics for our customers.

Jeffrey John Zekauskas: But for our customers going on in Latin America, So theres still some some of that destocking to come to it in.

Jeffrey John Zekauskas: In the future, but the vast majority of our business is focused on North America So for us.

Mark J. Costa: So, for us, we're feeling pretty good about the ag business and how it played out. Regarding AM, we had, you know, a very strong recovery in the durable space. So sequentially, sir, durables were up 15% from Q4. They were also up significantly relative to last year. So that was a great improvement. We also saw shrinkage in cosmetics sequentially grow, you know, shrink up 15%. Cosmetics also have a good sequential growth rate.

Jeffrey John Zekauskas: We're feeling pretty good about the AG business and how it's how it played out.

Jeffrey John Zekauskas: Regarding AAM.

Jeffrey John Zekauskas: We had.

Jeffrey John Zekauskas: A very strong recovery in the durable space.

Jeffrey John Zekauskas: So sequentially.

Jeffrey John Zekauskas: Sort of durables were up 15% from Q4.

Jeffrey John Zekauskas: We're up significantly relative to last year. So that was a great improvement. We saw also shrink in cosmetics sequentially grows shrink up 15% in cosmetics also and have a good sequential growth.

Mark J. Costa: So those were all good, but there's still a lot of destocking, offsetting some of that growth in medical that's still going on. And there's a tough comp on the performance film side. Last year, we had a very strong loading of channels in China, orders, and with the auto markets basically being flat globally but down in China, you know, the demand was not nearly as good for performance films this year as it was last year, you know, against that tough competition, and you know the inner layer part was sort of flattish with builds.

Jeffrey John Zekauskas: So those are all good but.

But theres still a lot of destocking offsetting some of that growth in medical that's still going on and.

Jeffrey John Zekauskas: And there's a tough comp on the performance films side.

Jeffrey John Zekauskas: Last year, we had a very strong loading of channels in China orders.

Jeffrey John Zekauskas: With the auto market is basically being flat globally, but down in China. The demand was not nearly as good and performance films. This year as it was last year against that tough comp.

Jeffrey John Zekauskas: And.

Jeffrey John Zekauskas: The interlayer part was sort of flattish with builds.

Mark J. Costa: Great, thank you very much. Our next question comes from John Roberts of Mizzou Home. Your line is open, please go ahead.

Great. Thank you very much.

Jeffrey John Zekauskas: Our next question comes from John Roberts of Mizuho.

John Ezekiel E. Roberts: Your line is open. Please go ahead.

Operator: Thank you.

John Ezekiel E. Roberts: Thank you.

John Ezekiel E. Roberts: Morning, John, and thanks for the question. Just as a reminder, as we've highlighted earlier, we're on a pathway to the $75 million incremental EBITDA. I would point out, obviously, in 2023, we had a net investment in one and an expense of roughly about $25 million. So you can think about EBITDA growing from, you know, roughly consuming $25 to about $50 positive for the year. As we've highlighted, it took us a little longer to start up here in Q1, and that's the reason that others, you know, ran over on the IVID view.

John Ezekiel E. Roberts: Like the new Kingsport plant at the EBIT level will be modestly above breakeven in the second half.

John Ezekiel E. Roberts: Do you still expect to get to corporate average or higher EBIT margins for that facility and what happens with the other segment here as Kingsport moves out of other and you begin spending on long view.

Speaker Change: Good morning, John and then thanks for the question.

Speaker Change: Just as a reminder.

John Ezekiel E. Roberts: As we've highlighted earlier, we're on a pathway to the $75 million in incremental EBITDA.

Speaker Change: Now obviously in 2023, we had a net investment in the other and an expense of roughly about $25 million.

Speaker Change: Thinking about EBITDA growing from.

Speaker Change: Roughly consuming 25 to about 50% positive for the year.

Speaker Change: As we've highlighted it took us a little longer to.

Speaker Change: Start up here in Q1 and.

Speaker Change: And Thats the reason that other.

Speaker Change: Ran over on on the <unk> as.

John Ezekiel E. Roberts: As we transition into the second half, we expect, you know, mostly all of the IVIDR growth to occur in the second half, and that'll be primarily within advanced materials, and that's also why you see our confidence in the range that we've provided for AEM overall. As I look at it in total, you know, basically the IVIDR, there's still about two-thirds advanced materials, one-third and other for the full On the margin basis question, I would say it's above segment average margins on both EBITDA and EBIT basis in advanced materials.

Speaker Change: As we transition in the second half, we expect mostly all of the EBITDA growth to occur in the second half.

Speaker Change: And that'll be primarily within advanced materials and that's also why you see our confidence in.

Speaker Change: And the range that we provided for AAM overall as I as I look at it in total basically the EBITDA is still about two thirds advanced materials, one third and other for the full year.

Speaker Change: On the margin basis question I would say, it's above segment average margins on both EBITDA and EBIT basis and advanced materials.

Operator: The next question comes from Kevin McCarthy of Vertical Research Partners.

Speaker Change: Thank you.

Kevin William McCarthy: The next question comes from Kevin Mccarthy.

Kevin William McCarthy: Research partners.

Kevin William McCarthy: Yes, good morning, and thank you. Just to follow up on advanced materials markers, it's nice to see your quarterly results. And I guess, if I look at the annual guide, you're looking for a 40% growth rate at the midpoint versus 2023 annual EBIT for AM. So maybe just if we zoom out the lens, the last couple of years have been kind of dislocated for that business. But you're now seemingly coming back and regaining traction into a better place.

Kevin William McCarthy: Your line is open.

Kevin William McCarthy: Yes, good morning, and thank you just to follow up on advanced materials market, It's nice to see your quarterly results.

Kevin William McCarthy: If I look at the annual guide.

Kevin William McCarthy: Youre looking for a 40% growth rate at the midpoint versus 2023 annual EBIT for AAM.

Speaker Change: Maybe just if we zoom out the land to the last couple of years have been kind of dislocated for that business. You are now seemingly coming back and regaining traction into a better place. What is your view of the likely growth rate or how do you see the puts and takes for that segment over the next couple of years, yet you had a few.

Kevin William McCarthy: What is your view of the likely growth rate or how do you see the puts and takes for that segment over the next couple of years? Yet you had a few years where you did north of 500 million. Now you've got some methanolysis-related earnings flowing into the segment, as we just discussed. So how do you see the glide path for AM, you know, in twenty five and twenty six? Maybe some color there would be helpful. Yeah.

Speaker Change: Few years, where you did north of $500 million now.

Speaker Change: Now you've got some methanol assist related.

Speaker Change: Earnings flowing into this segment as was just discussed so how do you see the glide path for AAM.

Speaker Change: And 25 and 26, maybe some color there would be helpful.

Mark J. Costa: Sure. So first of all, you know, we're extremely happy to have Advanced Materials back on the track of sort of recovering from an extremely bad demand environment and getting back on track to deliver, you know, very attractive growth and very attractive margins for our owners. You know, at the end of 22 and 23, obviously, this was sort of the worst demand environment we'd ever seen. When you think about how demand came off, and we had over five quarters of destocking, along with very low demand in all the discretionary markets.

Speaker Change: Sure So first of all.

Speaker Change: We're extremely happy to have advanced materials back on a track of sort of recovering out as an extremely bad demand environment.

Speaker Change: And getting back on track to deliver.

Speaker Change: Very attractive growth and very attractive margins.

Speaker Change: For our owners.

Speaker Change: At the end of 'twenty two 'twenty three was obviously.

Speaker Change: The worst demand environment, we've ever seen.

Speaker Change: When you think about how.

Speaker Change: Demand came off.

Speaker Change: Over five quarters of Destocking, along with very low demand in all of the discretionary markets.

Speaker Change: Whether it would be.

Speaker Change: Nancy or durables.

Speaker Change: Even destocking in great markets like medical I mean, we clearly didn't every market destock out except for auto.

Speaker Change: Through the entire year last year, so the volume mix headwind because it was also the highest value markets was pretty significant.

Mark J. Costa: [inaudible] So getting volume back, which is just destocking the Remember, we're not forecasting any improvement in this forecast for in-market growth in the discretionary market. We're going to, as we've guided, start recovering earnings in a pretty substantial way versus last year. So, as you look forward into 25 and 26, you know, we believe we'll certainly get back above where we were in 2021 and continue to grow from there, right?

Speaker Change: So getting volume back which is just destocking this year.

Speaker Change: Remember, we're not forecasting any improvement in this forecast for end market growth and the discretionary markets.

Speaker Change: <unk>.

Speaker Change: We're going to as we've guided start recovering earnings near pre substantial way versus last year.

Speaker Change: So as you look forward into 'twenty, five and 'twenty six.

Speaker Change: We believe we will certainly get back above where we were in 2021.

Speaker Change: And continue to grow from there right. So we don't have any market growth yet in this in this outlook for this year, so that's upside as markets stabilize and recover.

Mark J. Costa: So, we don't have any market growth yet in this outlook for this year. So, that's upside as the markets, you know, stabilize and recover. You're just getting started on the Kingsport Methanolysis plant, where the asset utilization is quite low, and the volumes, you know, are, you know, not that high this year.

Speaker Change: Just getting started on the Kingsport methanol plant.

Speaker Change: Where the asset utilization is quite low in the volumes.

Speaker Change: Are not that high this year, so you've got to fill out of that plant.

Mark J. Costa: So, you've got the filling out of that plant creating a lot of value. So, that, you know, can take that $75 million to $150 million of EBITDA. And that still has additional upside from there, but that's just in the first 25.

Speaker Change: Creating a lot of value so that can take that 75 million to $150 million of EBITDA.

Speaker Change: And Thats still has additional upside from there.

Speaker Change: That's just in 'twenty five.

Mark J. Costa: You know, we've got wins going on in our traditional innovation model and other parts of, especially plastics, that are creating growth. We've got restrictive circular economy driven growth in eyewear with our, you know, renew recycled loop, you know, for all the eyewear companies, and you've got automotive continuing to deliver innovative growth above market. They will do that this year, and they'll keep doing that as we go forward.

Speaker Change: We got wins going on in our traditional innovation model in other parts of specialty plastics, that's creating growth we've got circular economy driven growth in eyewear with our renew recycled.

Speaker Change: For all of the eyewear companies and you've got automotive continuing to deliver innovative growth above market. They will do that this year and they'll keep doing that as we go forward.

Mark J. Costa: So we've got all these different sources of volume growth that help, you know, get back above 21 and keep going. You've got acid utilization tailwinds that will come with this, especially the methanolysis plant, which is a pretty large chunk of new cost into this year relative to, you know, last year and then leveraging that. I would say on the spread side, I would assume things to be relatively neutral. So, you know, we got our margins to an attractive level to support investment in this business, despite some of the challenges that we had, you know, as we caught up to inflation.

Speaker Change: So you've got all these different sources of volume growth that help.

Speaker Change: Get back above 21, and keep going you've got asset utilization tailwind that will come with us, especially the methanol plant.

Speaker Change: Which is a pretty large chunk of new cost into this year relative to last year and then <unk>.

Speaker Change: Leveraging that.

Speaker Change: I would say on the spread side I would assume things to be relatively neutral so.

Speaker Change: We got our margins to an attractive level to support investment in this business.

Speaker Change: From some of the challenges that we had.

Speaker Change: As we caught up to inflation.

Mark J. Costa: And, you know, prices will probably come off a bit over time in line with how raw material and energy costs are coming off a bit. So I would say, as you think about the modeling, I wouldn't assume an expansion or contraction in spreads. I would assume that we've got attractive margins now and you're leveraging all that volume against those margins to create pretty attractive earnings growth.

Speaker Change: And prices will probably come off a bit over time in line with how raw material and energy costs are coming off a bit.

Speaker Change: So I would say as you think about the modeling.

Speaker Change: I wouldn't assume an expansion or contraction in spreads.

Assume that we've got attractive margins now and you're leveraging all that volume against those margins to create pretty attractive earnings growth.

Kevin William McCarthy: Thank you for that. And then, just as a brief follow-up, I think your commentary cited some new application wins and Advanced Materials. What are those?

Speaker Change: Okay.

Speaker Change: Thank you for that and then just as a brief follow up I think your commentary cited some new application wins in advanced materials.

Speaker Change: What are those.

Mark J. Costa: Do you see yourself as gaining share relative to competitors and broader market growth rates? Yeah, the middle of this business has always

<unk>.

Speaker Change: Do you see yourself as gaining share relative to competitors, who brought broader market growth rates.

Mark J. Costa: Yeah, the hope in the middle of this business has always been growing above in markets because you're winning in applications relative to some other material, right? And that's been true for Triton forever, as well as other copolyesters. So I'll just give you a couple examples.

Speaker Change: Yes, the model of this business has always been.

Speaker Change: Growing above end markets, because youre, winning and applications relative to some other materials right and that's been true for trading forever.

Speaker Change: Well as other co polyesters, so I'll just give you a couple examples one.

Mark J. Costa: One, growing a lot in hydration bottles in China. It wasn't a market for us, but they're using Triton, and we're seeing growth, you know, in those kinds of products. You know, we're getting into a broader set of applications with Black & Decker on their tools. Their first launch with Triton was really successful, and now they're expanding into a broader set of tools.

Speaker Change: We're growing a lot in hydration bottles in China wasn't a market for us.

Speaker Change: They are using Triton and <unk>.

Speaker Change: We're seeing growth in those kinds of products.

Speaker Change: Seeing getting into a broader set of applications with black and decker on their tools their first launch with Triton.

It was really successful and now they're expanding into a broader set of tools.

Mark J. Costa: We have a new product for shrink packaging that's patented that is a Recycle Code 1 product, so it's fully recyclable where the historical products were not. So that's gaining a lot of traction for us both in volume and margin, you know, as we just win with a more recyclable product. Obviously, recycled content would add more value to it.

Speaker Change: We have a new product for shrink packaging that is patented.

That is a recycle code one product so it's fully recyclable, where the historical products we're not.

Speaker Change: So thats, gaining a lot of traction for us both in volume and margin.

Speaker Change: Just win with a more recyclable product, obviously recycled content would add more value to it.

Mark J. Costa: You know, so there's always these wins we have in all kinds of places in the portfolio that sort of have allowed us to deliver attractive growth. And as much as we're very excited about methanolysis, and that is... a huge priority of capital deployment and innovation effort. You know, we wanted to remind investors that, you know, our core model is still active and winning business every day. And we're adding, you know, methanolysis on top of that.

So there's always these wins, we have in all kinds of places in the portfolio.

Speaker Change: That sort of has allowed us to deliver attractive growth and as much as we're very excited about methanol CIS and that is a.

Speaker Change: A huge priority of capital deployment and innovation effort.

Speaker Change: Wanted to remind investors that.

Speaker Change: Our core model is still active and winning business every day.

Speaker Change: And we're adding methanol sits on top of that.

Speaker Change: Thanks Mark.

Operator: The next question comes from Patrick Cunningham of City. Your line is open.

Speaker Change: Okay.

Speaker Change: The next question comes from Patrick Cunningham of Cte.

Patrick David Cunningham: Your line is open.

Patrick David Cunningham: Hi, good morning. You seem to be fairly confident that we're, you know, reconnecting primary demand levels here, but do you get the sense that any of the volume improvement in the first quarter came from maybe some modest restocking? I know I've heard that potential that that's happening on, you know, from paints and coatings producers, or maybe there are people, you know, building safety stocks ahead of geopolitical disruption. So I'm just wondering if you've seen any of that in the first quarter and expectations into 2Q.

Patrick David Cunningham: Hi, good morning.

Patrick David Cunningham: You seem to be fairly confident that we're reconnecting to primary demand levels here, but can you give a sense that any of the volume improvement in the first quarter that came from maybe some modest restocking I know that.

Patrick David Cunningham: That potential that that's happening.

Patrick David Cunningham: From paints and coatings producers or maybe there is people building safety stock ahead of geopolitical disruption. So I'm just wondering if you've seen any of that in the first quarter and expectations into Q.

Mark J. Costa: I'd say, on the margin, there's probably a bit of restocking that's occurring. I mean, it's almost impossible to really know the answer to that question.

Speaker Change: Yes, I'd say on the margin there is probably a bit of restocking that's occurring.

Speaker Change: Almost impossible to really know the answer that question when you get into Destocking or restocking youre customers are not exactly that clear.

Patrick David Cunningham: You know, when you get into destocking or restocking, your customers are not exactly that clear on what's going on. But I can definitely, you know, point to a few examples where, you know, Red Sea logistics concerns would cause some customers to, you know, buy ahead of that risk, in a few places, as an example. But, you know, at this stage, I think it's really hard to call, you know, a lack of destocking, a little bit of restocking, or maybe even a little bit of market growth.

Speaker Change: What's going on.

Speaker Change: But I can definitely point to a few examples where red sea logistics concerns would cause some has caused some customers to buy ahead of that risk.

Speaker Change: In a few places.

Speaker Change: As an example.

Speaker Change: But.

Speaker Change: At this stage I think it's really hard to call.

Speaker Change: Lack of Destocking, a little bit of restocking or maybe even a little bit of market growth. I mean, there's just no way to know precisely what the what that is but I can tell you. It's not a it's not a material driver.

Patrick David Cunningham: I mean, there's just no way to know precisely what that is. But I can tell you it's not a material driver of our earnings at this stage based on what we know from the customers. We're not seeing large orders come in where people are restocking in some sort of noticeable way.

Speaker Change: Of our earnings at this stage based on what we know from the customers. We're not seeing large orders come in where people are restocking and some sort of noticeable way.

Patrick David Cunningham: Got it, that's helpful. And then just on the expanded scope for the Longview facility, is the funding you're receiving there from the DOE simply just offsetting that expanded scope? And how should we think about economic returns, given this expanded scope? And would you expect additional premiums? Or, or maybe we are reliant on, you know, some price for carbon abatement in the future?

Got it that's helpful. And then just on the expanded scope for the Longview facility. The funding you're receiving from the Doa simply just offsetting that expanded scope and how should we think about economic returns given this expanded scope and would you expect additional premiums or maybe are we rely on.

Speaker Change: <unk> some price for carbon abatement in the future.

Patrick David Cunningham: Patrick, thanks for the question. The DOE program, as it's designed, basically provides a series of cash payments, you know, based on what we negotiate there, that, you know, basically is providing an investment offset to the capex as we move along. So yes, it is a way I look at it as a direct offset to the capital. Basically, it'll be progress payments across almost three years of construction, so you've got that

Patrick Thanks for the question.

Speaker Change: E program essence design basically.

Patrick David Cunningham: It's a series of cash payments based on what we negotiate there that.

Patrick David Cunningham: Basically is it providing an investment offset to the capex as we move.

Yes. It is.

Patrick David Cunningham: The way I look at it as a direct offset to the capital.

Patrick David Cunningham: Basically it will be.

Patrick David Cunningham: <unk> payments across.

Patrick David Cunningham: Almost three years of construction.

Patrick David Cunningham: And it's up to $375 million, as we've talked about. We're currently negotiating the exact terms of the award, but we're targeting to have line of sight to that over the next three to six months. And it is definitely an offset to the additional, as we talk about thermal batteries, as we think about green energy sources, that this will offset that as well as the additional inflation on that. So it's back to, And we're confident that we'll have greater than 12% returns on the project. I think it's too early to tell on the premiums associated with

Patrick David Cunningham: <unk> got that matching and it's up to $375 million as we've talked about and we're currently negotiating.

Patrick David Cunningham: Those exact terms of the award, but we are targeting to have an aside to that over the next three to six months and it is definitely an offset to the additional as we talk about thermal about batteries as we think about.

Patrick David Cunningham: The Green energy source that this will offset that as well as the additional inflation on that so.

Patrick David Cunningham: Back to.

Patrick David Cunningham: Yeah.

Patrick David Cunningham: And we're confident that we will have greater than 12% returns on the project.

Patrick David Cunningham: I think it's too early to tell on the sort of premiums associated with <unk>.

Mark J. Costa: I think it's too early to tell on the sort of premiums associated with decarbonization, but it's very clear people are willing to pay premiums for recycled content. It's very like product safety. Plastic waste in the environment is a very emotional issue for consumers, and they're really, really not happy about it. And so they're not happy with the brands about it, and they're putting pressure on their politicians to address it. Carbon, you know, is. It's still not exactly clear what premiums people are going to get for just decarbonization.

Patrick David Cunningham: The carbonization.

Patrick David Cunningham: It's very clear people are willing to pay premiums for recycled content is very like product safety plastic waste in the environment. It's a very emotional issue for consumers and they are really really not happy about it and so theyre not happy the brands about it and they are putting pressure on their politicians to address it.

Patrick David Cunningham: Carbon.

Patrick David Cunningham: Is it still not exactly clear what premiums people are going to get for just de carbonization. So I think there is.

Mark J. Costa: So I think there's upside as there becomes a cost to carbon, you know, as policies start getting implemented on that front, but we're not assuming any premiums associated with the carbon side of things in our core economics, but we are going to, we are, as we go forward with this project, know that it's very compelling to see, you know, what the value is with consumers on that front, I mean with brands.

Patrick David Cunningham: Upside as it becomes a cost of carbon is policy start getting implemented on that front, but we're not assuming any premiums associated with.

On the carbon side of things in our core economics, but we're going to we are as we go forward with this project now that it's very compelling see what the value is with consumers on that front with the brands.

Operator: The next question comes from Josh Spector of UBS. Please go ahead.

Speaker Change: Thank you.

Speaker Change: The next question comes from Josh Spector of UBS. Please go ahead.

Joshua David Spector: Yeah, hi, good morning. I have two questions on volumes. So, you know, in my math, when I look at the first quarter, volumes versus 2019, it was, it appears to be your easiest comp, you're up 3% year on year. So, the first piece is, how do you think the year-on-year comps on volumes will progress through the year? Do you do better or worse on where that comp is compared to the 2019 baseline?

Joshua David Spector: Yes, hi, good morning, two questions I wanted to ask on volumes. So on my math when I look at the first quarter volumes versus 2019.

Joshua David Spector: Is it appears to be your easiest comp you were up 3% year on year. So the first piece is how do you think the year on year comps on volumes progressed through the year can you do better or worse.

Joshua David Spector: Where that comp versus 2019 baseline and related to that I guess, there's a lot of choppiness in some of the numbers where would you say your core volumes are in your plan for the year.

Joshua David Spector: And related to that, I guess, there's a lot of choppiness in some of the numbers. Where would you say your core volumes are in your plan for the year versus 2019? Thinking about that in terms of, you know, what's the benefit if you see a stronger demand improvement or a full reconnection versus just improvement? Thanks.

Joshua David Spector: 2019, and thinking about that in terms of.

Joshua David Spector: What the benefit if you see a stronger demand improvement or a full reconnection suggest improvement. Thanks.

Mark J. Costa: Here. So, you know, I think it's easiest to sort of separate our revenue portfolio between what is stable in markets and what is sort of discretionary in markets. The stable in markets, you know, have consistently sort of grown through 2019 to now at very modest rates, you can call it two to 3%, whether it's medical, personal care, etc., those kind of markets. But there was a dislocation that even in those markets, there was destocking last year that played out depending on the market, one, two, three quarters, to sort of finish their destocking in those markets.

Joshua David Spector: Yes.

Speaker Change: Sure so.

Speaker Change: I think it's easiest to sort of separate our revenue portfolio between.

Speaker Change: What are stable end markets and what are sort of discretionary end markets the stable end markets.

Speaker Change: Have consistently sort of grown through.

Speaker Change: 2019 to now with very modest rate seen in call it 2% to 3%, whether its medical and personal care et cetera, those kinds of markets.

Speaker Change: But there was a dislocation that even in those markets. There was destocking last year that played out depending on the on the market 123 quarters.

Speaker Change: Sort of finished their destocking.

Speaker Change: In those in those markets and then they've reconnected back to sort of demand and our growing again, which is true for this year.

Mark J. Costa: And then they've reconnected back to sort of demand and are growing again, which is true for this year, with medical being sort of the worst, ag and medical being the most stable markets that had the biggest destocking because of fears of not having inventory in 21 and 22, other discretionary markets. You know, as everyone knows, by looking at housing data or, you know, automotive build data, a little harder to see, but, you know, appliances, electronics, etc. Same story.

Speaker Change: Medical being sort of the worst Aegean medical being the most stable markets that that.

Speaker Change: <unk> had the biggest destocking because of fears of not having inventory in 'twenty one to 'twenty two.

Speaker Change: On the discretionary markets.

As everyone knows by looking at housing data or automotive build data.

Speaker Change: Hard to see it but.

Speaker Change: <unk> electronics et cetera, same store demand is relative to 2019 not great.

Mark J. Costa: You know, demand is, you know, relative to 2019, not great. We're at a 28-year low in existing home sales in the United States. You know, BNC construction in China is off, you know, dramatically still, and also off a lot in Europe. So BNC firing demands are, you know, extremely challenged.

Speaker Change: We're at a 28 year low and existing home sales.

Speaker Change: In the United States P&C construction in China is off dramatically and also off a lot in Europe, So P&C Brian demands.

Speaker Change: Extremely challenged.

Mark J. Costa: You know, when you think about the materials world, existing home sales to Eastman are more important than new homes, because of all the appliances, electronics, you know, more painting, etc. So, that market is very challenged. It will come back.

Speaker Change: When you think about the materials world existing home sales.

Speaker Change: Something to Eastman is more important than.

Speaker Change: Then new homes because of all the appliances electronics.

Speaker Change: More painting et cetera.

Speaker Change: So that market is very challenged it will come back. It's obviously I don't think coming back this year, but that's upside.

Mark J. Costa: It's obviously, I don't think it's coming back this year, but that's the upside to getting back to what is normal from where we are now and then growing from there. So, there's a pretty big gap there relative to 19. When it comes to auto, same thing.

To getting back to what is normal from where we are now and then growing from there. So there is a pretty big gap there relative to 19.

Speaker Change: When it comes auto same thing, there's a huge <unk>.

Mark J. Costa: You know, there's a huge backlog of increasingly older cars that need to be replaced around the world, and, you know, first with semiconductors, you know, limiting the ability for consumers to buy cars, then interest rates now slowing down the rate of buying cars, but, you know, the demand for that will certainly recover and be a significant amount of upside for us. Same thing with durables, you know, big shift to, you know, service At some point, people rebalance back to some blend of, you know, buying material things, you know, discretionary items, and, you know, seeing Taylor Swift.

Backlog of <unk>.

Increasingly older cars that need to be replaced around the world.

Speaker Change: And first is semiconductors limiting the ability for consumers to buy cars than interest rates now slowing down the rate of buying cars, but.

Speaker Change: The demand for that will certainly recover and be a significant amount of upside for us.

Speaker Change: Same thing with durable big shift service lifestyle post.

Speaker Change: Covid at some point people rebalance back to some blend of buying material discretionary items in and seeing Taylor Swift.

Mark J. Costa: So, you know, I think that all of those are still well below sort of, you know, 19 levels in one form or fashion relative to where they should be. So, as you look at this year and the way our guidance is built, all we have is a lack of these stocks, some innovation-driven growth, starting to deliver real value out of methanolysis, and stable markets being okay. And all that recovery that I just described is upside to 25 and 26.

Speaker Change: So I think that all of those.

Speaker Change: You are still well below sort of 19 levels in one form or fashion relative to where they should be so as you look at this year and the way our guidance is built all we have is the lack of destocking. Some innovation driven growth starting to deliver real value out of methanol Sis stable market as being okay.

Speaker Change: And all of that recovery that I, just described as upside to $25 26, I don't know about to tell you, which year it is going to happen.

Mark J. Costa: I'm not about to tell you which year it's going to happen, but, you know, there's certainly a lot of upside. And places that are most challenged are also our highest-valued markets from a, you know, variable margin per unit basis. So, as those markets went down, it was a significant headwind. As those markets come back, it's going to be a significant tailwind.

Speaker Change: But theres certainly a lot of upside in places that are most challenged are also our highest value markets from the variable margin per unit basis. So.

Those markets went down it was a significant headwind.

Speaker Change: As those markets come back it's going to be a significant tailwind.

Joshua David Spector: Thanks, I appreciate that. I guess if I try to wrap that all together, I struggle with whether your volumes for 2019 versus 2018, are you flat? Are you down high single digits, just considering the two offtakes? Is there a way to quantify that at all?

Speaker Change: Yeah.

Speaker Change: Thanks, and I appreciate that I guess, if I try to wrap that all together.

Speaker Change: I struggle with a pure volumes for 2019 versus <unk>.

Speaker Change: Flat to down high single digits, just considering the two uptake is there a way to quantify that at all.

Mark J. Costa: I don't have that answer for you on a sort of integrated company basis. We look at everything on a market-by-market basis. And so what I told you is sort of how to view it. Half the revenue is very stable and growing. Half the revenue has a huge amount of upside at a very high value, so I'm not going to try and quantify that on a weighted average basis. Okay, thanks. Our next question comes from Lawrence Alexander of Jeffreys. Please go ahead. I've given the feedback you're hearing from

Speaker Change: Oh.

Speaker Change: I don't have that answer for you in that it at a sort of integrated company basis, we look at everything on a market by market basis.

Speaker Change: So what I told you is sort of how to view it half the revenue is very stable and growing half. The revenue has a huge amount of upside at very high value.

Speaker Change: And.

Speaker Change: But.

Speaker Change: I'm not going to try and quantify that on a weighted average basis.

Speaker Change: Okay. Thanks, a lot.

Speaker Change: Our next question comes from Lauren.

Lauren: Zander of Jefferies. Please go ahead.

Lauren Zander: Hi, given the feedback you're hearing from customers around the recycling plants.

Operator: Our next question comes from Lawrence Alexander of Jeffreys. Please go ahead.

Lauren Zander: Now that you've started one off and you have.

Laurence Alexander: I don't I don't think so. I just want to understand the question correctly before I try and answer it. Um, you know, we have three projects; we have the normal core business that has maintenance, right? So there's always capex around that, or call it in a three to 350 range. And then there's always special investments; we're making and growing our capacity to serve all the different specialty markets we have, you know, which has always been part of a core model.

Making progress on the next two.

And also kind of that consumers increasingly see that alternatives are available.

Lauren Zander: Is that changing the way you think about.

Lauren Zander: Managing the balance sheet and the cadence of projects. So let's say the next five to seven years.

Speaker Change: I don't I don't think so I just want make sure understand the question correctly before I try to answer it.

Speaker Change: Yeah.

Speaker Change: We have three project, we have the normal core business. It has maintenance right. So there's always capex around that called out in the three to $3 50 range and then there is always specialty investments we're making.

Speaker Change: And growing our capacity to serve all the different specialty markets, we have which has always been part of our core model and that takes you to with maintenance $5 to $600 million range on Capex. When you go beyond that then you are starting to make choices around how much am I doing in share repurchase versus how deploying capital to the circular economy.

Laurence Alexander: And that takes you to, you know, with maintenance, the five to $600 million range on CapEx. When you go beyond that, then you're starting to make choices around how much am I doing in share repurchase versus how, you know, I'm deploying capital to the circular economy.

Mark J. Costa: Obviously, we've got one plant behind us at this stage, so there's a question of, you know, when you build France and Texas, how do you stagger them, where are they going to be right on top of each other, you know, and how the CapEx for those two programs, net of incentives, you know, sort of add up. And, you know, we believe we have a balance sheet and a cash flow in place to fund all that, so we don't have to take on debt to do it. Just answer that question.

Speaker Change: Obviously, we've got one plant behind us at this stage. So there is a question of when you build.

Speaker Change: <unk> and Texas, how do you stagger them or are they going to be right on top of each other.

Speaker Change: And how the Capex for those two programs net of incentives.

Speaker Change: <unk> add together.

Speaker Change: And we believe we have a balance sheet and our cash flow in place to fund all of that so we don't have to take on debt to do it just to answer that question.

Mark J. Costa: And, you know, how we're going to, I mean, by just nature, I think, as opposed to intention, these projects will end up staggered one way or another. It would be extremely unusual if they both start at the same time, just based on getting permits and contracts and everything else. So they'll be staggered to some degree. That's all factored into our analysis about how we work through 25 and 26. I don't know if you want to add to that, Willie. Yeah, so what I would just say is we're confident that we can keep...

Speaker Change: And.

Speaker Change: How we're going to buy.

Speaker Change: Nature, I think as opposed to intention these projects will end up staggered one way or another.

Speaker Change: It would be extremely unusual if they both start at the same time, just based on getting permits and contracts and everything else.

Speaker Change: So there'll be staggered.

Speaker Change: Yes to some degree that's all factored into our analysis about how we work through 25 and 26 I don't know if you want to add to that really so what I would just say is we're confident that we can keep a strong investment grade balance sheet through that youre seeing that as we update our guidance on capital this year of being 7% to 750.

Mark J. Costa: So what I would just say is we're confident that we can keep a strong investment grade balance sheet through that You're seeing that as we update our guidance on capital this year of being seven to seven hundred fifty And expecting share repurchases of two to three hundred and as Mark has outlined We've always been agile between you know, our growth investments and then using any excess cash for Bolt-ons and then returning cash to shareholders We will continue to be disciplined in that capital allocation and we expect to generate the cash flow to fund our strategy Thank you Our next question comes from Mike Sison of Wells Fargo. Please go ahead. Hey guys, nice start to the year. Mark, when you think about

Speaker Change: And expecting share repurchases of two to 300 and as Mark has outlined we've always an agile between.

Speaker Change: Our growth investments and then using any excess cash for.

Speaker Change: Bolt ons and then returning cash to shareholders. We will continue to be disciplined in that capital allocation and we expect to generate the cash flow to fund our strategy.

Speaker Change: Thank you.

Our next.

Speaker Change: Comes from Mike Sison of Wells Fargo.

Michael Joseph Sison: Please go ahead.

Michael Joseph Sison: Hey, guys, thanks start to the year.

Michael Joseph Sison: Mark when you think about.

Michael Joseph Sison: Maybe at 26, 27 and start our longer term earnings.

Operator: Our next question comes from Mike Sisson of Wells Fargo.

Michael Joseph Sison: Answering your methanol facility in the U S.

Michael Joseph Sison: It is ramping up while it sounds like and if you add that the potential scale up there plus potential volume is there sort of.

Michael Joseph Sison: Mike, let me start with, last year we had $1.6 billion of EBITDA. This year, our guidance is $1.8 billion, and what I would say, as we've talked about normalized, that's going to be north of $2 billion. As we think about adding 150 to 200 for the Kingsport plant, that puts us in that $2.4 billion range. And then there's the upside as we think about adding the Longview project and the France project on top of that.

Michael Joseph Sison: EBITDA potentially you think you can get back to or get above I think you peaked about 2.2 in 'twenty one just.

Michael Joseph Sison: Framing.

Michael Joseph Sison: What the earnings potential is that volume doesn't recover over the next several years.

Michael Joseph Sison: And Mike.

Speaker Change: Let me start with.

Speaker Change: Last year, we had $1 6 billion of EBITDA. This year, our guidance is $1 eight and what I would say as we've talked about normalized that's going to be.

North of $2 billion, as we think about adding.

Speaker Change: 150.

Speaker Change: 200 for the Kingsport plant.

Speaker Change: That puts us.

Speaker Change: And that $2 $4 billion range and then there is upside as we think about.

Michael Joseph Sison: But we're obviously highly focused right now on delivering growth and advanced materials and additives and functional products with the investments we've made to date. As Mark just highlighted, from an in-market perspective, you know, ultimately we're leveraged to a recovery in the economy now that the stocking is substantially behind us. And that's what we're focused on delivering.

Speaker Change: Adding the Longview project in the France project on top of that.

Speaker Change: Were obviously highly focused right now on delivering the growth in advanced materials, and additives and functional products that the investments we've done to date as Mark just highlighted from an end market.

Ultimately, we're leveraged to a recovery in the economy now that the Destocking is substantially behind us and that's what we're focused on delivering.

Speaker Change: If you do look at it on a historical cost basis, it's more compelling because we sold off.

Mark J. Costa: And if you do look at it on a historical comp basis, it's more compelling because we sold off $175 million of EBITDA in adhesives and tires and used the proceeds of that to reduce the share count, basically neutralizing what we sold off in EBITDA. So when you get to an EPS level, the leverage of that EBITDA number that Willie just told you is much more significant on an EPS and stock price basis.

Speaker Change: $175 million of EBITDA.

Speaker Change: Adhesives, and tires and used the proceeds of that to reduce share count.

Speaker Change: <unk>.

Speaker Change: Basically neutralizing what we sold off in the EBITDA. So when you get to an EPS level.

Speaker Change: Leverage of that EBITDA number that really just told you is much more significant.

Speaker Change: On the EPS and stock price basis.

Speaker Change: Great. Thank you.

Operator: Our next question comes from Arun Viswanathan of RBC. Please go ahead.

Speaker Change: Our next question comes from Orange.

Orange: <unk> of RBC.

Arun Shankar Viswanathan: Great, thanks for taking my question. I have a similar question to Mike here.

Orange: Please go ahead.

Orange: Great. Thanks for taking my question.

Orange: I had a similar question to Mike here. So if you think about your.

Arun Shankar Viswanathan: So if you think about your bridge to EPS, it looks like you're on a path to do about 3.60 or so in the first half, and that would imply about $4 to $4.40 for the second half, depending on where you land in the range, the midpoint to the upper end. And so, you know, that $4 to $4.40, maybe if you annualized that for next year, that's $8 to $8.80, which would kind of fall in line with your maybe 10% EPS growth targets, or $8 to $12. Is that how you guys are thinking about how you will kind of progress from here? And if that is the case, would that be mainly a kind of volume recovery and maybe some methanolysis?

Orange: Your bridge to EPS, it looks like you're on a path to do about it.

Speaker Change: 360, or so in the first half and that would imply about $4 to $4 40 for the second half depending on where you land in the range.

Speaker Change: The midpoint to the upper end.

Speaker Change: And so that four in a 440 <unk> annualize that for next year, that's $8 to $8 80, which would kind of fall in line with year, maybe 10% EPS growth.

Speaker Change: Targets are eight to 12.

Speaker Change: Is that how you guys are thinking about how you kind of progress from here and if that is the case.

Speaker Change: Would that be mainly kind of volume recovery and maybe some methanol assess or how are we thinking you guys are feeling about kind of where you are in the evolution here with the return of some primary demand and some volume growth you.

Arun Shankar Viswanathan: Or how are we thinking? You guys are feeling about, you know, kind of where you are in the evolution here with the return of some primary demand and some volume growth. Do you see that target of eight to 12% EPS growth back in view? Thanks.

Speaker Change: Do you see that target of 8% to 12% EPS growth back in that can view. Thanks.

Arun Shankar Viswanathan: Yeah, I think you framed it well, and I think it fits into the in-market lens and the leverage to the volume growth that we've seen since 2019, which is basically been roughly flat to slightly negative since that timeline at the corporate level on the volume mix line. With the combination of advanced materials and leverage, we talked about how that volume mix drops to the bottom line with the fixed cost structure that we've had in combination with growth.

Speaker Change: Yes, I think I think you framed it well and I think it fits in.

Speaker Change: To the end market lens and the leverage to the volume growth.

Speaker Change: That we've seen since 2019, which has basically been roughly flat to slightly negative since that time line at the corporate level on the volume mix.

Speaker Change: Fine.

Speaker Change: With the combination of advanced materials, and the leverage we talked about how that volume mix drops to the bottom line with the fixed cost structure that we've had in combination with the growth in the back half of this year, we see that leverage for the application growth as well as.

Arun Shankar Viswanathan: In the back half of this year, we see that leverage for the application growth as well as, you know, the back half EBITDA growth for the methanolysis facility. When we look into growth in 2025, we've talked about another $75 million of EBITDA growth from methanolysis and the application wins that we'll have there, as well as solidifying our contract structure on fiber, so you can consider that stable in this period. And we will have growth as agriculture recovers, as building and construction recovers, and as AFP. And I would, sort of, trough levels in the intermediate space. So 10% growth at the midpoint is reasonable as we go forward. I just said AFP also has growth.

Speaker Change: As.

Speaker Change: The back half EBITDA growth for the methanol at this facility when.

Speaker Change: When we look into growth in 2025.

Speaker Change: <unk> talked about.

Speaker Change: Another $75 million of EBITDA growth from ethanol Sis and <unk>.

Speaker Change: Implication wins that we'll have there as well as we are at.

Speaker Change: Solidifying our contract structure on fiber. So you can consider that stable in this period and we will have growth.

Agricultures as building and construction recovers in AFP.

Speaker Change: And I would say we're at.

Sort of a trough levels in the intermediate space, So Tim 10% growth at the midpoint is a reasonable as we go forward.

Mark J. Costa: I just add AFP also has growth. We're at an exceptionally low level of heat transfer fluid fills this year.

Speaker Change: I'd just add <unk> growth were at exceptionally low level of heat transfer fluid fills. This year, we haven't clear order book to that $30 million dropped from 20% to 24 to recover that as we go into 'twenty five not.

Mark J. Costa: We have a clear order book to, you know, that $30 million drop from 23 to 24 to recover that as we go into 25. Not to mention BNC having any kind of market recovery would be an upside. So there's upside in AFP. And there's a lot of upside in AM. Stability in fibers, you know; CI is at the bottom of the market. So at some point, you know, it should start coming off of that and recovering from a spread point of view. So there are multiple ways you can sort of combine that together to get to growth next year versus this year.

Speaker Change: I mentioned P&C, having any kind of market recovery would be upside. So there is upside in AFP theres, a lot of upside and am stability in fibers and Ci is at the bottom of the market. So at some point start coming off of that and recovering from a spread point of view. So there's multiple ways you sort of combine that together to get to growth next year versus this.

Mark J. Costa: Let's make the next question the last one, please.

Speaker Change: Sure.

Speaker Change: Thanks.

Speaker Change: Let's make the next question the last one please.

Operator: Thank you. So our final question comes from Salvator Tiano of Bank of America. Please go ahead.

Speaker Change: Thank you. Our final question comes from Salvator Tiano of Bank of America. Please go ahead.

Salvator Tiano: Thank you very much. So, firstly, I want to ask a little bit about the FRAMS project and, you know, setting aside CAPEX and radiation. How do you see OPEX there? And especially because I think a couple of months ago you signed an agreement with a recycling company to import PET waste from as far away as Italy and Spain, which, obviously, would mean pretty high pitch circles. So, does this mean that there could be – that the FRAMS project may have elevated OPEX because of that, firstly?

Salvator Tiano: Thank you very much so firstly I wanted to ask a little bit about that.

Salvator Tiano: <unk> project.

Salvator Tiano: Setting aside the Capex and originations how do you see the opex, there and especially because I think a couple of months ago, you signed an agreement with them.

Salvator Tiano: Recycling company to input.

Salvator Tiano: Waste from.

Salvator Tiano: As far away as he billions, Spain, which.

Salvator Tiano: Obviously pretty high fleet circles so.

Salvator Tiano: This means that there could be.

Salvator Tiano: The project May have elevated opex because of that personally and secondly.

Salvator Tiano: And secondly, why, so far, you know, you haven't signed agreements for more domestic supply? Because I would think that in Europe, with our single-stream PET recycling, it would be the ideal location, and yet you still have to go, you know, as far as, for instance, Italy to get fixed.

Salvator Tiano: Why.

Speaker Change: Thank you.

Speaker Change: You haven't signed agreements with promote domestic supply because I would think that.

Speaker Change: In Europe with our single stream recycling it would be the ideal location that again, you still have to go as far as Thomson's I need them to get.

Mark J. Costa: So, you know, this is a large-scale project to aggregate feedstock from a wider range than just France, given the state of the current infrastructure in Europe for collection and sortation. Is it the appropriate thing to do, right? France has a huge opportunity to improve in collections and sortation.

Speaker Change: Feedstock.

Speaker Change: So this is a large scale project.

Speaker Change: In aggregate feedstock from a wider range than just France.

Speaker Change: Given the state of the current infrastructure in Europe for collection Sortation is.

Speaker Change: Is the appropriate thing to do right, France is a huge opportunity to improve in collections and sortation. It's part of why they want to really support. This project currently we have about 70% of our feedstock under contract.

Mark J. Costa: It's part of why they want to really support this project. Currently, we have about 70% of our feedstock under contract, which is a mixture of France, Germany, Italy, and Spain, as you noted. Logistics costs were always factored into our economics for this approach to the marketplace. So, that's all built in. But the last 3% is not signed because we want to work with the French government and the local municipalities across France to sort of get that feedstock closer as they develop that infrastructure.

Speaker Change: Which is a mixture of France, Germany, Italy, Spain as you noted logistics costs, we're always factored into our economics.

Speaker Change: This approach to the marketplace. So.

Speaker Change: That's all built in.

Speaker Change: <unk>.

But the last 3% not signed because we.

Speaker Change: We want to work with the French government and the local.

Speaker Change: Disparities across France to sort of get that feedstock closer in as they develop that infrastructure. So that's sort of where we want to go that's why we're not signing up for any more from other places because we are focusing on how to get more out of France for that last remainder.

Mark J. Costa: So that's sort of where we want to go. That's why we're not signing up for any more from other places because we're focusing on how to get more out of France for that last remainder. But that's all built in, and the actual logistics cost per kg is not significant in the economics for this plant.

Speaker Change: But that's all built in and that the actual.

Speaker Change: <unk> cost per kg is not significant in the economics for this plan.

Salvator Tiano: Okay, perfect. And the other thing I want to clarify is about what we expect for this year's fiber volumes, because, you know, Q1 was down 7% sequentially, you talk about Q2 being similar to Q1, and then another step down in the second half. So that pretty much seems to imply a very big annual decline, which I don't think we were expecting.

Okay, perfect and then the other thing I wanted to clarify is about what do we expect for this year fiber bulk fibers volumes because.

Speaker Change: Q1 was down 7% sequentially, you talked about Q2 being similar to Q1 and then another step down in second half so that pretty much seems to imply a very big annual decline, which I don't think it's what we were expecting.

Salvator Tiano: On the volume, what I would say is, we've talked about NAYA growing, and we expect that to grow on the pay front. At the pay front, we would expect it to be flat to modestly down, but we also provide intermediates and flake, and we would expect that's where some of the volume would be declining. Yeah, on a full year basis.

Speaker Change: On the volume what I would say is.

Speaker Change: There is only we've talked about <unk> growing and we expect that to grow.

Speaker Change: On the.

Speaker Change: That's the pace front, we would expect.

Speaker Change: All of it.

Speaker Change: Flat to modestly down, but we also provide intermediates.

Speaker Change: And.

Blake and we would expect that's where some of the volume decline.

Mark J. Costa: On a full-year basis, it gets a little complicated when you're looking at sequential and year-over-year numbers for this. The total volume is relatively flat when you look at it on a full year basis.

Speaker Change: On a full year basis, it gets a little complicated doing looking at sequential and year over year numbers for this.

Speaker Change: <unk> volume is relatively flat to last year.

Speaker Change: When you look at it on a full year basis.

Salvator Tiano: Okay, perfect. Thank you very much.

Okay perfect. Thank you very much.

Operator: Okay, thank you everyone for joining us today. I really hope you have a great day and a great weekend. Thank you.

Speaker Change: Okay. Thank you everyone for joining us today I really hope you have a great day and a great weekend. Thank you.

Operator: This concludes today's call. Thank you for your participation. You may now disconnect.

Speaker Change: This concludes today's call. Thank you for your participation you may now disconnect.

Speaker Change: [music].

Q1 2024 Eastman Chemical Co Earnings Call

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